Beginner Questions about Risk Free, Risk Premium and Beta

I have been learning DCF model and hope someone can help answer a few questions below. Thanks a lot in advance!

  1. (Risk free rate) I found some posts stated DCF model is based on the nominal term so we use nominal interest rate. If that is the case, do we always use 10 year Treasury yield + inflation rate for the Rf (assuming this is a US business)?

  2. (Equity Risk Premium) I have been watching Damodaran's Valuation videos. He mentioned he always uses the forward looking equity risk premium instead of historical looking. To do that, he uses the S&P index current level and adjusted Dividend and Buy Back for each of the coming year based on the estimates. Then, he can find the expected return on stocks and subtract the risk free rate to the equity risk premium.
    My questions: 1. Where do I find the base year dividend and stock buy back total amount? From Bloomberg, Capital IQ or somewhere else?
    2. How do I find the estimate growth for stock dividend and stock buy back for the coming years?
    3. If a company's main business is in Asia but trades in the U.S, we need to use that country's equity risk premium and other numbers to value, right?

  3. (Beta) Most of time when we do a DCF, should we always use the bottom up beta instead of the regression beta because it has lower standard error?

Thanks again!

 

Blanditiis ipsum autem placeat dolor. Hic neque quod dolorem enim consequatur rem odio.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (145) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
CompBanker's picture
CompBanker
98.9
7
kanon's picture
kanon
98.9
8
GameTheory's picture
GameTheory
98.9
9
Linda Abraham's picture
Linda Abraham
98.8
10
DrApeman's picture
DrApeman
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”